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TMI Blog2021 (3) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... nsumption which was not produced before the AO and not even accorded opportunity by calling for remand report from AO while accepting fresh evidences and arguments made before him? 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred by deleting addition on account of excess consumption of raw material amounting to Rs. 2.2841828/- and also failed to appreciate that the disallowance was made taking for as reasonable in the light of discrepancies found in the consumption of raw material during the course of physical verification by the Inspectors and when the discrepancies were found in physical verification it was the responsibility of the assessee to furnish proper explanation to explain the reasons for such discrepancies? 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred by deleting addition of Rs. 3677078/- and Rs. 9266496/- on account of suppression of sale of Bareilly and Nandesari Plants ignoring the findings of the AO and accepted assessee explanation without any verification ? 4. The Ld. CIT(A) has failed to appreciate that books of account of the assessee. were rejected by the AO u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in such annexure. 4.5 The AO, on the basis of the details furnished by the assessee in annexure 'A' prepared a chart containing the details of unit wise and product wise which was showing the consumption of actual units with respect to Furnace Oil, Wood, High Speed Oil and electricity in the process of production. This chart was compared with the details furnished by the assessee in the Annual Report wherein certain discrepancies were found. The discrepancies observed by the AO stand as under: 5.4 As may be seen from the chart above, there is huge difference in quantitative consumption of Power and Fuel as per the Annual report in comparison to the chart prepared from the data submitted by the assessee, the difference in the particulars of the power and fuel in worked as under; S.No. Particulars Units consumed as per Annual report Units consumed as per the chart prepared from the date submitted by the assessee Difference Value of the difference * * (Rs.) 1. Furnace Oil 272980 Kgms 250761 Kgms 22219 Kgms 617688 2. Wood 20477710 19631875 Kgms 845835 Kgms 2495213 3. High Speed Oil 155460 Kgms 33471 Kgms 121989 Kgms 323270 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28812 Add: Power generated through HSD consumed in Process Plant 123739 Total 12467788 Less: Power Consumed as per Annual Report 12107050 Difference 360738 The above difference of 360738 Kwh is explained as under: The power consumption as taken by the Department is as under: Name of Product Production (MT) Unit of Power P.U. (in KWh) Total Power consumed (in Kwh) Astrolide (Pure/DEP/IPM/BB/DPG 658 1797.07 1182472 The power consumption should be taken Name of Product Production (MT) Unit of Power P.U. (in kwh) Total Power consumed (in kwh) AstrolidePure 457 1797.07 821775 The difference is as under Name of Product Production (MT) Total Power consumed (in kwh) Astrolide (Pure/DEP/IPM/BB/DPG) 201 360697 This difference is due to variation in production quantity as taken by the Department and which is actually taken for charging the same to the product. Astrolide SEP/IPM/BB/DPG are formulations which are made from Astrolide Pure and so for calculating power consumption the total production of Astrolide Pure is considered i.e (105425 Kgs. Sold as such as and 351862 Kgs which is used for production of formulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: S.No. Particulars Value of the difference (Rs.) Amount of Disallowance (Rs.) Remarks 1 Furnace Oil 617688 617688 100% of the difference 2 Wood 2495213 2495213 100% of the difference 3 High Speed Oil 323270 323270 100% of the difference 4 Electricity 51210591 43717410 80% of the difference Total 54646762 4,71,53,581 Total expenses of Rs. 4,71,53,581/- out of the Power and Fuel is disallowed on account of inflation of expenditure and added back to the total income of the assessee 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 5.1 The assessee before learned CIT (A) besides reiterating its submission before the AO, contended that it has been maintaining proper books of account for past several years which are subject to various type of audit. Similarly, there has not been pointed out any discrepancies in the books of accounts maintained by it. Further the assessee explained that all the queries raised during the assessment proceeding were duly answered and all the expenses were supported by the bill and voucher. 6. The learned CIT (A) after considering the submission of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th total unit purchased to find out as to whether the rate of Rs. 10.89 per unit as shown by the appellant is correct or not. However, the AO while arriving at any conclusion for rejection of books of account of the appellant has not done this exercise also. Considering all these facts, it is held that the AO is not correct in working out differences of consummation of power and fuel merely as per his chart which was prepared by him on the basis of some of the submissions of the appellant as such submissions were made by the appellant to the AO in respect of production of the items and by ignoring consumption of other power and fuel in utilities, workshop, administration/ plant office, laboratory, effluent treatment plant, Research & Development division, staff colonies, street lights and stores. Nowhere in the assessment order, the AO by pointing out any mistakes in the audited books of accounts and bills and vouchers has established that the details and figures given by the appellant as per its submission dated 16/01/2014 and dated 28/02/2014 were wrong. In view of this, the addition of Rs. 4,71,53,581/- as made by the AO after rejecting the books of account of the appellant is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be added back to the total income of the assessee. The assessee has submitted its reply vide letter dated 28/02/2014 (page 355 to 360 of Paper Book) which explains the difference found out by the AO. But the AO has not considered the explanation. The AO has observed that the rate per unit of Electricity is shown at Rs. 10.89/- in the Annual Audit Report, whereas the actual amount comes to Rs. 5.54/- per unit. While reviewing the Annexure A, page 12 of Director report (Page 90 of Paper Book), the AO found the electricity rate per unit is Rs. 10.89/- but if we look the report again and divide the Total value with total unit purchase it will come to Rs. 5.5S9/- only. It clearly shows that there was only a clerical mistake which was done at the time of preparing annual report. The AO rejected the contention of the assessee and made addition of Rs. 4,37,17,410/- Sir, it is submitted that the assessee has given all the requisite details regarding the usage of power and fuel by the company, but the AO simply by taking the usage of process plant made an addition of the differential amount after giving the benefit 20% in electricity. Sir, the major addition made by the AO is by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andesari is increased by 22% vis-a-vis increase in the cost of power consumption by 22%. Therefore, it can be interpreted that the costs increase is at par with the increase in production and therefore, the allegation of the AO that the appellant company has consumed power in excess, in comparison with preceding year is not correct. Furthermore, if we compare the utilization and cost of power of Bareilly unit with preceding year, it can be seen that the overall cost of power was reduced by 1% inspite of the fact the electricity rate has increased as compared to preceding year. The said comparison is attached for your reference at Annexure: A. (Page 265) From above facts, it can be interpreted that AO made the addition only on the basis of production of the items in Process plant. As far as electricity is concerned, the assessee gets it from Electricity companies and it is supported by proper bills. At the time of visit by I.T.O. and Income Tax Inspectors, all the electricity bills along with the books, including R G 1 register which could have given proper state of the accounts, were available at the plant. We also draw your kind attention to our reply dated 28.02.2014 which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings Viz a Viz the information furnished in the annual report with respect to power and fuel expenses. However, the learned CIT (A) was pleased to delete the addition made by the AO by observing that the AO was wrong in making addition merely on noticing some difference in the chart prepared by the assessee viz-a-viz details furnished by the assessee in the Annual report while ignoring the other facts that the power was also used in other units. 10.1 First of all, we note that the genuineness of the expenses has not been doubted by the AO. Admittedly, the difference were found by the AO in the detail submitted by the assessee viz a viz information furnished in the annual report. The question arises whether the information furnished in the annual report can be basis for making the disallowance. In our considered view the answer stands in negative. It is because to make the disallowance of the expenses, the AO has to establish the fact that the expenses were bogus or were not incurred in connection with the business. But the AO has not brought anything on record suggesting that the expenses were bogus or these expenses were not incurred in the course of the business. 10.2 Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the AO that if there remain any ambiguity then department may depute inspector in this regard. 12.1 However the AO after comparing the data submitted by the assessee vide letter dated 28-02-2014 with the evidences collected by the department in pursuance to summon under section 131(1) found that there are still difference for Rs. 48,50,505/- as detailed and tabulated at page 20 of the order. The AO further found that new annexure-D was not supported by the documentary evidences. Accordingly the AO concluded that the assessee manipulated it accounts to reduce taxable income. Thus the AO rejected the contention of the assessee and disallowed the excess claim of raw material consumed for Rs. 2,28,41,828 and added the same to total income of the assessee. 13. Aggrieved assessee preferred an appeal to the CIT (A). 13.1 The assessee before the learned CIT (A) claimed that consumption of raw material at its Nandesari Plant is correct. The differences as pointed by the AO was due to the fact that at time of survey under section 131(1) of the Act the income tax inspector collected data with respect to 11 major item of raw material only whereas it is consuming 68 type raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the appellant that the inspectors had considered only major items of raw materials issued from Store to Plant. The appellant submitted to the AO that as per accounting practice, the movement of all raw materials at Stores and Plant should have been considered and total consumption of raw materials should have been ascertained. The appellant also furnished to the AO the details of opening stock of raw materials, raw materials purchased during the year, raw material consumed, inter unit transfer of raw material and closing stock of raw materials as per annexure 'D'. These details as furnished as per annexure 'D' was submitted by the appellant to the Ad vide its above letter dated 28/02/2014. But the AO has not considered this submission as well as details of opening stock of raw materials, raw materials purchased during the year, raw material consumed, inter unit transfer of raw material and closing stock of raw materials as furnished as per annexure XD' enclosed with the submission dated 28/02/2014. The appellant also requested the AO vide its letter dated 28/02/2014 to depute any inspector for further verification of its above details and submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to bring on record any materials to show that this reported figures of cost of raw materials of Rs. 17489.09 lacs was not correct. In this regard no defects either in the books of accounts or in bills and vouchers are pointed out by the AO. The AO has not established that this reported figure of Rs. 17489.09 lacs in the annual audit report is1 false./The AO has only relied upon the information collected by the inspectors as a result of spot verification at Nandesari Plant and based on that he has arrived at conclusion that appellant has consumed raw materials of Rs. 39,17,93,233/- only and after comparing this figure with the reported figure of Rs. 41,46,35,061/- in the audit report he has worked the .discrepancy of Rs. 2,28,41,828/-. However, the details collected by the inspectors were not complete as discussed in earlier paragraph and the same cannot be compared with the figure given in the audit report. The AO after making verification of books of accounts and bills and vouchers has; not established that facts and figures and submission of the appellant as made vide its letter dated 28/02/2014 in response to the show cause notice were incorrect and false. Considering all thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory on 07.02.2014, however, the books \ of accounts were already finalized and audited by the auditors on 05.08.2011. This shows that there were no probabilities of manipulating the books of accounts. The AO, merely for rejecting the books of accounts, had presumed anything without judicious application of mind. All the above details were produced before the A.O., but the same was not considered by him. For rejecting the contention of the assessee, the A.O. Vide para no. 6.3 of the assessment of order (Page no. 20) had identified the discrepancies in four items of raw material aggregating to Rs. 48,50,505/-comparing the consumption as per the evidence u/s.!31(l) of the Act and submission dated 28.02.2014The details are tabulated as under: Sr. No. Particular Consumption as per the evidence u/s. 131(1) of the Act Consumption as per the submission dated 28.02.2014. Difference 1 Acetic Acid 1 2,21,14,873 2,23,66,961 2,52,088 2 Alpha Methyl Styrene 3,58,34,270 4,03,15,661 44,81,391 3 Toluene 52,96,257 53,34,998 38,741 4 Propylene Oxide 1,49,17,381 1,49,95,666 78,285 Total 48,50,505 Acetic Acid The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- only, instead of Rs. 41,46,35,061/-, the A.O accordingly worked out the discrepancies of Rs. 2,28,41,828/-. The details collected by the inspectors were no complete and the same cannot be compared with the figures in the audit report. 17.1 The ld. AR before us vehemently supported the order of the ld. CIT-A. 18. We have heard the rival contention of both the parties and perused the material available before us. From the preceding discussion, we note the AO has pointed out difference in the value of consumption shown by the assessee in its annual report viz a viz the information collected by the inspector of income tax under section 131 of the Act. The difference was pointed out at Rs. 2,28,41,828/- which was added to the total income of the assessee. However the learned CIT (A) was pleased to delete the addition made by the AO by observing that the inspector of income tax has collected the details of the consumption of raw material with respect to 11 items only whereas the number of items consumed by the assessee in the year under consideration are 68 in numbers. Furthermore, the learned CIT (A) also found that the assessing officer himself has mentioned difference to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.1 The Assessee in reply submitted an annexure namely annexure-C and claimed that the same is self-explanatory which is reproduced as under: Reply to Point No.2 Discrepancy in the value of sale of Camphor/Isoborneol Rs. in Lacs Total Stock Transfer during the year (included in sales of FCP sales and Bareilly Sales) 2893.64 Less: Stock sold during the year from Bhiwandi Godown 2856.87 Reduced from the sales of Camphor/Isoborneol 36.77 Rs. 4.28 Lacs added as the profit element of stock sold from Bhiwandi Rs. 41.05 reduced as the same was stock in hand at Bhiwandi Godown. 20.2 However the AO rejected the submission of the assessee by observing as under: The argument of the assessee is not supported by any documentary evidences. The assessee failed reconcile this discrepancy. As per the assessee's submission, Camphor/isoborneol amounting to Rs. 36.77 lacs was transferred from Bareilly to Bhiwandi godown. However, the assessee in its Annual report/Audit report has not reported about any such Godown or transfer of any product from man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 lacs. This amount of Rs. 41.05 lacs was reduced from Rs. 9171.11 lacs leaving the balance of Rs. 9130.06 lacs. Again, this profit component of Rs. 4.28 lacs was added back to the balance stock of Rs. 9130.06 lacs and as a, result of which there was total sales of Rs. 9134.34 lacs and this sales of Rs. 9134.34 lacs has been shown in the audit report of the appellant. These facts have not been proved by the AO to be wrong. The AO has not established that the figures explaning the discrepancy of sale of Rs. 36,77,078/- is hereby deleted. 23. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 24. The learned DR before us vehemently supported the order of the AO by reiterating the findings contained therein. 25. On the contrary, the learned AR before us submitted as under: It was explained that the stock of Rs. 36.77 Lacs were lying in stock at Bhiwandi. In fact, the appellant company transfers the goods from Factory to Bhiwandi Godown. However, while consolidating the books of all the units, stock transfers to godown are deducted and the actual sales made from godown are added and shown under the total sales. Explanation in tabular f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 30 4. Closing Stock (1+2+3) 10040.35 MT 5. Closing Stock as per Annual report 717.41MT As per Annual Report for AY 2011-12 page 40. 6. Difference [4-(5+6)] 9322.94 MT 27.2 The AO during the assessment proceedings deputed the inspector of income tax at the factory premises of the assessee located at NANDESARI- who has submitted the details of the sales made by the assessee of various products. 27.3 The AO subsequently compared the details collected under section 131 of the Act with the details of the sales submitted by the assessee. Accordingly the AO noticed certain differences in the quantity of the goods sold and shown by the assessee viz a viz the details collected under section 131 of the Act which was leading to the suppressed sale of Rs. 92,68,443/- only. 27.4 On question by the AO about such difference, the assessee claimed that there were certain mistakes committed in the detail provided on earlier occasion and accordingly filed a revised statement vide letter dated 28-02-2014 reconciling its sales quantity and the value with the sales quantity and the value obtained under section 131 of the Act after making necessary adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of products where no discrepancy was pointed out remained same. g) As mention above evidences were collected u/s 131(1) of the Act for Nandesari unit only. Therefore, to match total sales shown in Audited account, assessee has manipulated sales of Bareilly unit and Nandesari unit in such a manner so that total sales can be reconciled which had no basis. 8.8.1 For Cremate Solution sale quantity as per submission eft.5-2-2024 is actually shown by the assessee at 198933kgs. Instead of this quantity, in the show cause notice, 4105kgs had been incorrectly mentioned. Now, difference in sales value will become Nil. Difference is worked out to Rs. 9266496/-. Thus, Addition of Rs. 92,664,96/- is made instead of Rs. 92,68,444/- because the quantity figure for Chrornate solution was wrongly taken as 4105 kgs instead of 198933 kgs. Thus addition on total suppression sale is reduced by Rs. 1948/-. 8.9 Therefore, the reply of the assessee on the issue submitted is not accepted and difference in sale of Rs. 92,664,96/- is added back to the total income of the assessee on account of suppressed sales of Nandesari unit. 28. Aggrieved assessee preferred an appeal to the learned CIT (A) who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore the AO was required to find out correct position of sale on the basis of verification of audited books of accounts and bills and vouchers of the appellant. There are seven products in which the Ld. AO has found the difference in sales figure and has made the addition and as per the AR while making such addition he has not considered appellant's submission dated 14/02/2Q14. The appellant in submission dated nil as reproduced in earlier paragraphs of this appeal order has given the brief submission and the relevant page of RG-1 Register to reconcile the figures. It may be again mentioned that books of accounts of the appellant are audited by statutory auditors, tax auditors, cost auditors and none had reported any discrepancy and since the appellant is engaged in manufacturing activities and therefore every material produced is recorded in excise register i.e. RG-1 and dispatches made are also recorded in the said register RG-1. However, the auditors at no any place have pointed out any such discrepancy as is noticed by the AO. Considering all these facts, it is held that the AO is not correct in making addition of Rs. 92,68,443/- and therefore the same is/I deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative." 32.3 In view of the above, we are of the view that the addition of the gross profit to the total income of the assessee on account of such purchases will meet the end of justice. In view of the above, we direct the AO to make the addition to the extent of the amount of the gross profit embedded in such suppressed sale. Hence the ground of appeal of the revenue is partly allowed. 33. The next issue raised by the Revenue is that the learned CIT-A has accepted the additional evidences in violation of the provisions of rule 46A of income tax rules. 34. At the time of hearing, the learned DR has not brought anything on record suggesting that the learned CIT (A) has admitted the additional evidences filed by the assessee without providing an opportunity to the AO. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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